Copper is “THE” metal of electrification… making it absolutely essential to the global energy transition.
The billion-dollar question is… will there be enough of the red metal available to meet growing demand in this greener world?
The amount of copper needed for the transition, and for the planet to attain net-zero emissions by 2050, would require more copper production, in a relatively short period of time, than the world has ever witnessed.
The problem is… the last major copper investment cycle occurred way back in the 1970s when there were still plenty of large-scale, high-grade copper deposits to be found!
And while the sector is presently entering a period of increased greenfields exploration, new copper discoveries of merit are proving extraordinarily difficult to come by and are falling woefully short of compensating for the precipitous decline in ore grades from established mines.
In other words… most if not all of the “easy” copper deposits around the globe have already been found, and the vast majority of the easy-to-reach high-grade ore has already been scooped up.
Another major roadblock to bringing new supply online is the exorbitant amount of time required for bringing a new copper mine from discovery to production.
We’re talking 10-plus years from the time an economically viable copper resource is discovered all the way through the various stages of feasibility, permitting, and mine construction.
And that’s assuming each process goes smoothly, which, as anyone involved in mining knows, is very rarely the case.
Disruptions in major copper-producing nations have been in the spotlight in recent years, particularly in Peru — the world’s #2 copper producer at 10% of global supply — which has been beset by worker strikes and large-scale community protests since the ouster of former President Pedro Castillo in December of last year.
Wood Mackenzie’s VP of Metals & Mining, Robin Griffin, states, “We’re already forecasting major deficits in copper to 2030,” attributing that sentiment largely to ongoing unrest in Peru and higher demand for copper in the energy transition industry.
Additionally, Chile — the world’s largest copper producer at 27% of global supply — recorded a year-on-year decline of 7% in November 2022. “Overall we believe Chile will likely produce less copper from 2023 to 2025,” according to Goldman Sachs (January 2023).
Moreover, much of the world’s copper resources are situated in high-risk mining jurisdictions such as the Congo and Inner Mongolia… not exactly the kind of places major mining firms want to be setting up shop, especially considering what’s been transpiring in South America.
Those factors are combining for what many industry experts predict will be a protracted global copper shortfall that could last for decades. And that’s why investing in select copper stocks right now makes plenty of good sense.
In viewing the 5-year copper price chart below, we can see that the overall price trend of the red metal has been bullish, albeit a bit choppy, since 2020.
We witnessed a bit of a pullback in the first half of this year with prices temporarily retreating from a peak of around US$4.30 per pound in mid-January to an interim low of about US$3.60 per pound in late-May.
Yet, with the market now realizing that a large copper deficit is looming in the not-too-distant future, prices have since begun to inch back up toward the US$4/lb mark and could soon be well on their way to US$5-plus.
Commodities, and base metals in particular, are typically beset by short-term cyclical price volatility. Yet, the longer-term outlook for copper remains exceedingly bullish as higher prices will be required to incentivize new exploration and project development globally.
The reopening of China’s economy, and the high level of demand growth expected in the country’s EV and energy transition sector, is only going to stoke further demand for the red metal going forward.
As alluded to, copper demand is set to undergo a generational shift as decarbonization efforts ramp up across the globe in an effort to attain net-zero.
Al Chu, lead portfolio manager at BNY Mellon, says, “Copper is typically used as a construction metal for wiring for building, wiring for machinery and what not, but if we look at the decarbonization net zero energy transition trend, copper is the new oil.”
The bottom line is that, when it comes to electrifying something and transmitting electricity, you need copper — plain and simple. And that means everything from wind and solar power generation and the much needed revamping of electrical grids to EVs and consumer electronics.
For example, EVs require up to 175 lbs of copper per vehicle, which is roughly 4X the amount used in a typical combustion engine vehicle.
Plus, the global EV boom really can’t happen without the building out of $Billions in EV charging infrastructure, which is also highly copper intensive.
Turning to renewables, wind energy requires 2,000 tonnes of copper per gigawatt on average. Solar needs even more; about 5,000 tonnes of copper per gigawatt.
The global electricity grid needs to double by 2050 to meet net-zero targets with an estimated cost of roughly US$20 trillion to achieve that.
The Oregon Group recently published a report stating that 427Mt of copper will be needed by 2050. That’s more than 8 times as much as wind turbines, solar panels, and energy storage combined.
That same report highlighted that, in order to meet those targets, annual investment will need to increase from US$274 billion in 2022 to US$1 trillion by 2050. This year, global annual spending is expected to increase to US$300 billion.
McKinsey & Company states that, for the world to meet its net-zero emissions targets, it will be short 50Mt of copper by 2030.
In other words, the global energy transition is highly dependent on an ample supply of copper.
And while recycled material plays an important role in copper stockpiles, there is no current methodology for the economic retrieval of the metal from the billions of tonnes of lower-grade waste rock scattered around the world’s past and present copper mining operations.
In terms of investment strategies in today’s copper space, we believe the established players represent the safest and smartest way to participate at this early stage of copper’s impending rise to record highs.
The large, diversified producers stand to benefit from strong copper pricing going forward, carry far less risk than the pure exploration plays, and, because of their long-life mining operations, can typically withstand multiple commodity price cycles.
Phoenix, Arizona-based Freeport-McMoRan is a global leader in the copper space, supplying roughly 9% of the world’s mined copper.
The company operates large, long-life, geographically diverse mining assets with significant proven and probable reserves of copper, gold, and molybdenum.
Freeport’s key assets include the Grasberg minerals district in Indonesia (one of the world’s largest copper and gold deposits) plus significant mining operations in the Americas, including the large-scale Morenci minerals district in North America and the Cerro Verde operation in South America.
We particularly like Freeport’s strong geographical and metals diversification. The company produced 500,000 tonnes of copper, 483,000 ounces of gold, and 21 million pounds of molybdenum in the second quarter of 2023.
Freeport also pays a solid quarterly cash dividend of US$0.08 per share (0.72% annual dividend yield).
Toronto-based Hudbay Minerals is a copper-focused mining company with three long-life copper mining operations plus a world-class pipeline of copper growth projects in North America.
The company’s Canadian assets include the Snow Lake operations in Manitoba and the Copper Mountain Mine in British Columbia.
Complemented by meaningful gold production, copper is the primary metal produced by Hudbay.
The firm’s growth pipeline includes the Copper World project in Arizona and the Mason copper project in Nevada.
In Q1 2023, Hudbay produced 22,560 tonnes of copper and 47,240 ounces of gold.
Just like Freeport McMoRan, we view Hudbay’s strong geographical and metals diversification as a key strategic benefit to stakeholders.
Hudbay pays a quarterly cash dividend of US$0.01 per share (0.29% annualized dividend yield).
For investors seeking broad exposure to the copper industry without having to pick specific stocks — a copper-focused ETF may be the perfect fit.
In a rising copper market like we have today, and which we expect will only intensify in the coming years, we like the Global X Copper Miners ETF (NYSE: COPX) at current price levels.
COPX provides investors with access to a basket of copper mining companies, giving investors targeted exposure to the broader copper mining industry in a single trade.
As of July 2023, COPX held nearly 40 copper stocks with the following five making up the highest allocation: Lundin Mining (LUN, 5.9%), First Quantum (FM, 5.5%), Ivanhoe Mines (IVN, 5.5%), Grupo México (GMBXF, 5.2%), and KGHM (KGH, 5.15%).
The index is reconstituted and rebalanced on an annual basis and can be held as a short-term trade or as a mid to long-term investment.
With copper being an essential component for wind and solar energy, EVs, and numerous other forms of next-generation infrastructure, usage of the red metal should continue to rise over the coming years and, perhaps, decades.
Robust projected demand growth from the global energy transition — coupled with a dearth of tier-one-hosted discoveries and the long lead times required for mine development — should boost not only the price of copper but also the share prices of select top-tier producers.
Investing in select large-cap copper stocks is an excellent way to gain exposure to what we anticipate will be a rising market for the red metal over an extended time period.
In this Special Report, we covered two distinct ways to participate: major producers — Freeport-McMoRan (NYSE: FCX); Hudbay Minerals (NYSE: HBM) — and sector ETFs — Global X Copper Miners (NYSE: COPX).
In terms of specific stocks (in addition to Freeport and Hudbay), those taking a long-term value approach by establishing positions in select, well-diversified copper-focused miners with solid projects in safe mining jurisdictions, robust dividends, and healthy balance sheets should be well-rewarded over the longer-term.
As always, establish your positions incrementally and look for opportunities to buy the dips.
— Daily Profit Cycle Research
Editor’s Note: Our own John Carl of Profit Cycle Pro and Gerardo Del Real of Junior Resource Monthly recently returned from a site visit to a small-cap copper miner with operations in Arizona that may be on the cusp of something truly revolutionary in the copper extraction space. Their comprehensive report on the company and the state-of-the-art extraction process is hot off the press… and is available to you right here.